The U.S. Senate passed its version of tax reform early Saturday morning by a vote of 51-49, with all Democrats, both independents and one Republican voting no on the bill. The bill, as approved, differs significantly from the version released from the Senate Finance Committee last week.
The Senate Bill also differs from the House Bill approved November 17. This means that the two houses will have to hold a conference committee to reconcile the differences between the bills. Both Houses will then have to vote and approve the legislation as passed.
The Senate legislation retains the same seven tax brackets, although most are lowered through 2025 to 10%, 12%, 22.5%, 25%, 32.5%, 35%,and 38.5%. The child tax credit would be increased to $2,000 per child, and the income limits would be increased.
The Senate Bill allows individuals to deduct 23% of “domestic qualified business income” from pass-through entities such as partnerships and S Corporations.
The Bill also allows a $10,000 deduction for state property taxes. This is similar to the House Bill. Both Bills do not allow deductions for state income taxes.
The Bill also keeps the estate tax but doubles the current exemption amount. The House Bill would eliminate the estate tax starting in 2023.
The Senate Bill also keeps the deduction for medical expenses while the House Bill eliminates it. The Bill set an adjusted gross income (AGI) threshold at 7.5%.
The Bill lowers the top corporate rate from 35% to 20% with an effective date of 2019.
The Senate Bill would also repeal the individual mandate, which imposes a penalty on individuals who do not have health insurance. The House Bill does not repeal the mandate.
The Senate Bill adopted a revised Alternative Minimum Tax for corporations and individuals, rather than repealing it as the House Bill does.
The Senate Bill’s limit on interest deductions is much more restrictive than the House version.
Both Bills make major changes to the rules affecting U.S. companies’ foreign earnings and the rules for those payments.
The final Bill approved by both Houses of Congress may be very different. However, the similarities are beginning to show what may appear. Please stay tuned and I will update as we hear what happens. Please call our office if you would like to meet as planning is so very important this year!